Directors’ Masterclass Series 2025 Session 3-9: Overview of Climate-Related Physical Risks

By Dr. Naika Meili, Climate Risk Specialist, Swiss Re

Veng Hoong Loh, Vice President, Risk Data Solutions for Corporates, Swiss Re

Moderated by Dato’ Tengku Marina, Council Member of Climate Governance Malaysia (CGM)

The third session of Climate Governance Malaysia’s Directors’ Masterclass Series 2025 was held on 1 July 2025, in partnership with Swiss Re.

This session provided corporate board directors with a detailed understanding of climate-related physical risks and how they are expected to affect Southeast Asia, particularly Malaysia, in the coming decades. Through scientific insights, risk modelling techniques, and real-world case studies, the session helped attendees understand how to identify and assess both direct and indirect physical risks—from extreme weather to heat stress and supply chain disruptions—and how businesses can respond with informed, data-driven adaptation strategies.

Moderated by Dato’ Tengku Marina, the session opened with a reminder of CGM’s mission to support board directors in developing the knowledge and leadership required to respond to climate risks. She welcomed attendees and introduced the two guest speakers from Swiss Re, highlighting their experience in climate risk modelling and risk data solutions.

The first speaker, Dr. Naika Meili began by explaining the growing financial impact of natural catastrophes. Global insured losses from weather-related disasters have been rising at an average of 5–7% annually, with recent years seeing losses of over USD 100 billion. While greater insurance coverage explains some of the increase, climate change is playing a growing role in driving more frequent and intense losses. In Southeast Asia, the effects are already visible—increased flooding, rising sea levels, longer droughts, and extreme heat. She noted that 2024 was the first year where the global average temperature exceeded 1.5°C above pre-industrial levels—a threshold widely associated with the Paris Agreement. However, she also cautioned that a single year above this threshold does not mean the world has already reached this level of long-term warming, and that there is still an opportunity to stabilise future trajectories.

Flood remains a widely discussed and pressing physical climate risk across Southeast Asia, especially in Malaysia. As Dr. Naika explained, for every 1°C increase in temperature, the atmosphere can hold around 7% more moisture, which contributes to more intense rainfall and increased flood risk. Under the middle-of-the-road emissions scenario (SSP2-4.5), a river flood that historically had a 1-in-100-year probability could occur as frequently as once every 25 to 50 years by the end of the century in certain regions of Southeast Asia.

In addition to the impacts of climate change, flood-related losses are also rising due to increased development in high-risk areas—such as riverbanks and coastal zones—where high-value assets are increasingly concentrated. In many Southeast Asian cities, rapid urban growth has expanded into already flood-prone zones, as illustrated by the Pearl River Delta, where urban expansion has dramatically increased sealed surfaces, intensifying flash floods.

Dr. Naika also pointed to extreme heat as a growing concern. While floods often dominate the conversation, heat carries wide-reaching consequences for health and economic productivity. Scientific projections show a sharp increase in the number of days where temperature and humidity levels reach dangerous thresholds, especially in Southeast Asia. Even before reaching thresholds impacting human health, heat reduces productivity and causes broader economic disruption.

Natural catastrophe (NatCat) models are widely used by insurers and companies to assess physical climate risks by combining information about hazards and vulnerabilities to estimate potential losses. Developed over decades across the insurance and risk industries, Swiss Re maintains approximately 190 NatCat models, each customised to reflect specific regions and types of perils—including floods, tropical cyclones, and wildfires.

When combined with future climate projections—such as SSP1-2.6, SSP2-4.5, and SSP5-8.5—these models help assess how climate hazards and potential financial losses may shift under different emissions pathways. These projections incorporate uncertainty ranges to reflect the variability across global climate models. In addition to physical hazards, Swiss Re has developed a Biodiversity and Ecosystem Services Index to explore how business activities depend on natural systems and how disruptions to those systems may create risk.

Companies are increasingly applying physical climate risk assessments beyond regulatory disclosure. While some begin with compliance requirements or investor expectations, many are using the data to identify highly exposed locations, plan adaptation measures, and avoid future losses. Dr. Naika explained that assessments often start with evaluating present-day risks—such as flood exposure—before considering how those risks may evolve under different emissions scenarios. These insights support decisions around adaptation, emergency response, and long-term investment planning.

Following Dr. Naika Meili’s overview of physical climate risks, Veng Hoong Loh, Vice President at Swiss Re Corporate Solutions, presented how digital tools are being used to assess and manage these risks more effectively. Coming from an underwriting background, he explained how Swiss Re has turned years of risk insights into a user-friendly SaaS platform that enables organizations to identify and quantify physical climate risks such as floods, landslides, and heatwaves, while also incorporating future risk projections to support long-term strategic planning. He acknowledged that Swiss Re is not the only player developing these tools, with other companies in the sector also responding to the growing need for accessible, technology-driven climate risk solutions.

Veng showcased a sample risk assessment using a portfolio of hospitals in Malaysia, focusing on Parit Buntar, located near the Penang-Perak border. He demonstrated how geospatial risk layers, including flood and landslide risks, can be layered over asset locations. The platform allows organisations to create a ‘digital twin’ of their operations, covering both direct assets and supply chains, and assess the combined impact of multiple hazards. Such visualisations provide valuable insights into exposure and vulnerability. For instance, the flood risk mapping featured zones with probabilities ranging from 1-in-50 to 1-in-500 year events, based on data drawn from digital elevation models, scientific analyses, and historical loss records.

The platform also allows users to drill down into individual assets to explore modelled flood depths under different return periods. Notably, flood risk is categorised into three distinct types — fluvial (river overflow), pluvial (urban rainfall flooding), and storm surge (coastal flooding). These risks are normalised into a simple 1-to-10 score, making it easier to compare exposures across an entire asset portfolio. Additionally, the platform can factor in protective measures at each site, such as flood defences or elevation advantages, which can serve as credits or debits in the loss modelling process — refining the overall risk estimate and prioritisation decisions.

He further elaborated on how these insights extend beyond present risks to incorporate future climate projections using the latest IPCC CMIP6 models, including scenarios such as SSP1-2.6, SSP2-4.5, and SSP5-8.5. Each asset is assessed for its propensity for risk change under different pathways. To support long-term planning, the platform estimates future losses by combining projected hazards with asset location, type, and value. Importantly, in these projections, asset type and value are held constant, isolating the impact of changing climate conditions. This approach helps organisations understand how climate risks may evolve over time and prepare accordingly.

Several real-world examples were shared, including a real estate developer in Australia that used the platform to assess flood risks at a new development site and redesigned emergency exits to improve safety during extreme weather events. A local council in Queensland applied the tool to evaluate the climate exposure of public facilities such as schools, fire stations, and emergency shelters, resulting in a ranked list of the top 100 assets to prioritise for adaptation investments. A global agribusiness operating in over 80 countries used the platform to monitor seasonal climate risks and inform decisions at the board level. Meanwhile, a Japanese conglomerate leveraged the platform to assess how a single major disaster could impact multiple businesses within its group and to plan financial strategies for large-scale exposures. These case studies illustrated how climate risk data is increasingly being embedded into operational decision-making, investment planning, and governance processes.

Veng also emphasised the importance of using these tools not just for current exposures but also for future planning, especially as climate risks change over time. However, he also pointed out that digital assessments should be paired with on-site evaluations for more detailed, long-term decisions. The platform acts as a first layer of analysis, helping organizations to prioritize which locations require deeper investigation. This approach is particularly valuable for long-term infrastructure projects, such as those in the renewable energy sector, where climate resilience must be considered over multi-decade lifespans.

Dr. Naika Meili then returned to share additional case studies, including a transmission company in Australia that experienced tower failure due to unexpected flood events, and cold storage warehouses in Europe that suffered product losses during heatwaves. These incidents demonstrate the growing relevance of physical climate risks across diverse industries, from food and energy to logistics and pharmaceuticals.

The session effectively illustrated how digital tools are transforming climate risk assessment by providing granular, scenario-based insights. These capabilities are essential for organizations seeking to align with climate resilience objectives and anticipate future risk trajectories.

As emphasised in the closing remarks by Dato’ Tengku Marina, the systemic nature of climate risks demands proactive, data-driven, and strategic responses both at operational and governance levels, to build long-term business resilience.